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As Alaska’s budget uproar rolls on, a top Dunleavy adviser has seen it before

Gov. Mike Dunleavy's Office of Management and Budget Director Donna Arduin, center, watches as protesters hijacked the second day of the legislative special session at Wasilla Middle School on Wednesday, July 10, 2019. (Bill Roth / ADN)

State bureaucrats rarely become household names.

But say the name “Donna Arduin” to an Alaskan these days and they’re likely to know exactly who you’re talking about.

Arduin has been in the spotlight since Gov. Mike Dunleavy hired her as his top state budget executive shortly after his election in November, at a salary of $195,000.

Her reputation preceded her: Arduin, 56, has an almost 30-year career as an itinerant “budget fixer” of sorts, working for a series of Republican governors to balance state budgets, often by instituting drastic spending cuts.

She is a national figure in some conservative political circles and the third partner in a consulting firm that includes high-profile economists Arthur Laffer, the “father of supply-side economics” and a recent Presidential Medal of Freedom recipient, and Stephen Moore, President Donald Trump’s one-time nominee to the Federal Reserve Board.

As the director of the Alaska Office of Management and Budget, one of Arduin’s first actions was to supervise the implementation of a new management system ordered by the governor that gave her more power than previous OMB directors.

Arduin subsequently managed the governor’s proposal to balance the state budget in one year by cutting more than $1 billion and diverting hundreds of millions in revenue from municipalities. After lawmakers rejected Dunleavy’s plan and cut more than $100 million from the operating budget, the governor cut deeper, vetoing $444 million from the operating budget, including a 41% of state funding for the University of Alaska system as well as big reductions to public-assistance programs, the arts and education, among other areas.

Public outcry was instant and furious from many Alaskans, with economists and business groups saying the cuts would have a negative effect on the state’s economy. Dunleavy has support for the budget from fiscally conservative citizens and legislators who want to shrink the size of state government to be more in line with revenue, and who are also pushing to preserve the Permanent Fund dividend using the traditional formula.

It remains unclear how much of the budget cutting will stick.

Legislators are still deadlocked in a second special session in Juneau and have yet to reach resolution on four major and pressing fiscal issues facing Alaska, including setting the size of the dividend, possible overrides to the vetoes, the “reverse sweep” and passing the capital budget.

Through it all, Donna Arduin has been the enigma at the center of a bone-deep battle over Alaska’s future.

So just who is Arduin? Where did she come from? And what, exactly, is the vision she has been charged with bringing to fruition in Alaska?

Those are not easy questions to answer. While much has been written on Arduin through her decades as a national figure, she and the people who know her best won’t talk publicly for the most part.

Arduin generally avoids talking with news media, recently brushing off a Daily News reporter’s attempt to speak with her at Wasilla Middle School by responding, “I don’t do sound bites.”

Multiple requests for an interview with Arduin for this story were rejected.

Then-California Finance Director Donna Arduin stands in the shadows as she watches Gov. Arnold Schwarzenegger discuss the revised 2004-05 state budget she helped craft, at a news conference in Sacramento, Calif., Thursday, May 13, 2004. (AP Photo/Rich Pedroncelli)

From Outside, on the inside of big decisions

Some Alaskans have regarded her influence with a skepticism usually reserved for a fillet of farmed Atlantic salmon.

To her critics, she is an interloper who has not lived in Alaska long enough to qualify for a PFD or a resident fishing license making decisions that will impact the lives of many everyday Alaskans.

Sen. Bill Wielechowski, an Anchorage Democrat and a member of the Senate Finance Committee, said Arduin didn’t seem to know — or be curious about learning — the ways in which Alaska is fundamentally different from states such as California, Michigan and New York because of its isolation and more than 200 remote communities.

“Every finance committee hearing we had, she never had any answers to any substantive questions being asked,” Wielechowski said. “She didn’t understand the simple facts of Alaska.”

Arduin is “totally ideologically driven,” he said.

Donna Arduin, Alaska's director of the Office of Management and Budget, explains budget vetoes during a press conference Friday, June 28, 2019 in the Alaska State Capitol at Juneau. (James Brooks / ADN)

Feelings about Arduin’s outsider status crystallized in an encounter in Nome this spring, while the governor was taking his budget plan on an Americans for Prosperity-sponsored road show:

In the audience, Kawerak executive Melanie Bahnke — who has roots in Savoonga and speaks St. Lawrence Island Yupik as her first language — rose to confront Arduin directly.

“Don’t use the word ‘our’ when referring to our people, our state and our issues,” she said.

Bahnke said later that she was trying to focus on policies not people, but "couldn’t help but correct Arduin for using the term ‘our’ when talking about our state’s fiscal situation.”

“It is very concerning that someone who isn’t familiar with Alaska, including rural Alaska, has such great influence on the administration’s fiscal policies,” she said.

Others say Arduin is simply trying to balance the budget of a state that’s out of money, which Dunleavy has said he wants to do while paying a full Permanent Fund dividend and not instituting any taxes. They say Arduin is effective precisely because she’s an outsider.

Her supporters, among them at least some conservative legislators, view her as a shrewd and fearless operator steering the state on a path of financial stability without the entrenchment that comes from living and working in state government — content to play the bad cop for the good of a balanced budget.

“She is a person who seems to be unflappable,” said Mike Porcaro, a radio show host and owner of a public relations and advertising firm that did work for the Dunleavy campaign. "For those people who don’t like her, and I’m sure there are a few, they find her to be cold, unfeeling.”

Arduin, he said, is “very computer like. You give her a question and she has an answer, and the answer is usually pretty well thought out.”

She is hired to balance budgets, said Michael Genest, who worked directly with Arduin during her time as the California Department of Finance director and went on to hold the position himself.

“If she were given an ability to implement it, she would make your budget work,” said Genest. “Now, is that politically realistic in state of Alaska? My guess is probably not. Budget people everywhere are subject to politicians not wanting to deal with reality.”

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A few Republican lawmakers, including some who have supported the governor’s budget, declined to comment for this story.

Arduin has had little or no contact with some leaders in the Alaska Legislature, including House Speaker Bryce Edgmon of Dillingham, who changed his party affiliation from Democrat to undeclared this year.

“Speaker Edgmon has never met or spoken with Donna Arduin,” said House Majority spokesman Austin Baird.

Dunleavy has not described exactly how his administration connected with Arduin. At an on-the-record visit to the Daily News editorial board in March with other administration officials, Arduin said that she found the Alaska job through what she described as a small network of state budget experts.

“I live in a very small world, believe it or not, of people who work for government,” she said.

Though she has stayed in previous jobs for less than a year, just long enough to help a new Republican governor introduce an initial budget, there are signs Arduin may be sticking around. She has said publicly that the governor’s budget cuts will take two years and two legislative cycles to accomplish.

Alaska Gov. Mike Dunleavy speaks to reporters as his administration rolls out his budget plan in Juneau, Alaska, Wednesday, Feb. 13, 2019. The director of Dunleavy's budget office, Donna Arduin, is pictured on right. (AP Photo/Becky Bohrer)

‘I joined government to shrink it’

This much is known about Arduin’s history: Born in 1963, she was raised in Michigan and Indiana, the daughter of a dad who worked as a business teacher and high school basketball coach and an accountant mother, according to published reports. Her father worked an extra job to send her to a private Jesuit high school, where she was on the cheerleading squad.

“Like a lot of people in my generation, I grew up in the belief that if we worked hard we could do anything we wanted,” she said in a 2010 interview with Business Observer Florida.

After high school, she attended Duke University in North Carolina.

During her time at Duke, she interned at what was described by one journalist as “ground zero for proponents of supply-side economics,” the Office of Management and Budget during the Ronald Reagan administration. Supply-side economics is the theory that lowering taxes and regulation will lead to economic growth.

After graduating in 1985 with degrees in economics and public policy, Arduin worked for Morgan Stanley in Tokyo and New York. There, she met her mentor Patricia Woodworth, who recruited her to bring her skills to state government.

Arduin became a self-described libertarian working for the government, armed with the belief that a system of welfare and extensive government services served only to trap people and keep them from reaching their full potential.

“I joined government to shrink it,” Arduin said in a profile published in her Duke University alumni magazine in 2006. (The profile ends with Arduin whispering under her breath “get a job” to a panhandling man.)

She and Woodworth worked for Michigan Gov. John Engler in the early 1990s before working for New York Gov. George Pataki. There, Arduin helped erase a $5 billion budget deficit with cuts that included 21,000 state jobs, according to multiple media reports from the time.

The state posted budget surpluses amid a strong economy, but the good times didn’t last: When a recession hit in 2001, New York was again in budget trouble.

Arduin was then hired by Florida Gov. Jeb Bush, who later credited her with helping impose “fiscal discipline” on the state.

From Florida, Arduin was recruited to her highest-profile gig yet: helping California get its messy fiscal house in order under the leadership of then-new Gov. Arnold Schwarzenegger.

California Governor-elect Arnold Schwarzenegger, center, introduces Rep. David Dreier, R-Calif., left, and Donna Arduin during a press conference in a Santa Monica, Calif., hotel, Thursday, Oct. 9, 2003. (AP Photo/Reed Saxon)

Arduin’s arrival in California was met with fanfare and lots of media attention. Her boss, Schwarzenegger, described her as a “machine” and a “genius.”

“Friends and foes of the new auditor, Donna Arduin, describe her as a tough, smart fiscal conservative, totally loyal to her boss and more than ready to recommend budget cuts that anti-tax activists will love and the poor people’s lobby will hate,” the Sacramento Bee summarized in 2003.

Arduin’s budget playbook was a repeat of her work in other states, relying heavily on a mix of cuts to social services and higher education and emphasizing the performance-based funding of state agencies and programs.

Gov. Arnold Schwarzenegger talks with finance director Donna Arduin as they walk to a Capitol news conference held in Sacramento, Calif., Tuesday, June 15, 2004. (AP Photo/Rich Pedroncelli)

Arduin came into office at a time when a Republican governor was trying to make headway in reversing a monumental budget deficit without raising taxes — while dealing with a heavily Democratic legislature.

“It was a desperate situation,” said Genest, Arduin’s deputy in the California Department of Finance.

In California, Arduin’s outsider status was a liability. Democratic legislators said she didn’t understand how California worked.

“She was subjected to a great deal of personal insult because of that,” Genest said.

She was mocked for walking out of her first appearance at a legislative hearing. At one point, the Senate president called Arduin an “ogre” over a proposed cut.

In an oft-repeated anecdote, Arduin put up an “Ogre X-ing” sign in her office in response.

California Gov. Arnold Schwarzenegger refers a question to Finance Director Donna Arduin, right, during a news conference, Dec. 18, 2003, at the Capitol in Sacramento, Calif. (AP Photo/Steve Yeater, File)

The budget Arduin submitted was full of drastic cuts, some of which sparked public outrage. Proposed cuts to children’s health insurance, animal shelter programs and services to developmentally disabled people were so unpopular that Schwarzenegger withdrew them, according to media reports from the time.

The budget that eventually passed was substantially watered down with compromises.

But some of the cuts to the University of California system Arduin brokered did stick. Years later, administrators and faculty at the vaunted system fretted to the Los Angeles Times that lagging state funding had the "schools sliding toward mediocrity.”

Arduin left after 11 months, and California ended up borrowing money to avoid defaulting, Genest said.

Arduin stuck to her principles and was loyal to the wishes of her boss, Genest said. They didn’t raise taxes. They tried to cut. But ultimately it didn’t work, he said.

“We didn’t solve the problem. We made it worse,” he said. “That was the tradeoff.”

“She faced a very difficult challenge, and fundamentally nothing of real significance came out of it,” said Paul Warren, a research analyst with the Public Policy Institute of California.

Florida and beyond

Arduin faced some controversy when, 10 days after leaving the California budget job, she was appointed to the board of trustees of a company that was spinoff of GEO Group Inc., the Los Angeles Times reported. GEO Group at the time owned a California private prison that the state had recently decided to reopen. Arduin disputed her appointment was a conflict of interest, noting it involved the spinoff not GEO Group directly.

After California, Arduin returned to Florida, where she advised Florida Gov. Rick Scott on his election campaign. She still owns a canal-side Fort Lauderdale, Florida, home, listed now as a vacation rental "private compound with a heated pool.”

She also continued work for her company, Arduin, Laffer & Moore Econometrics, with Arthur Laffer and Stephen Moore, two prominent economists.

Moore was recently nominated by President Donald Trump for a seat on the Federal Reserve Board but who withdrew his name after criticism over his past writings about women. Trump presented Laffer with the Presidential Medal of Freedom in June, saying his supply-side economics theories have “spurred economic reforms around the world.”

Laffer’s work, especially his "Laffer Curve” theory that lowering tax rates can actually increase tax revenues, has been influential among conservative policymakers for decades.

President Donald Trump awards the Presidential Medal of Freedom to economist Arthur Laffer, Wednesday June 19, 2019, in the Oval Office of the White House in Washington. (AP Photo/Jacquelyn Martin)

Arduin, Laffer & Moore has been criticized by economists for what some see as less than rigorous methods. One Oklahoma study on eliminating the state’s personal income tax produced by the firm was trashed as not “meeting professional standards” and including “biased and greatly exaggerated estimates” by University of Oklahoma and Oklahoma State University economists.

“They make this argument in ways not supported by academic (standards) and using methods that aren’t remotely rigorous,” said Carl Davis, a senior analyst with the nonpartisan Institute on Taxation and Economic Policy.

“It's hard to view those studies as anything other than a tool for creating talking points to achieve an ideological outcome they wanted before they started the study,” Davis said.

In 2012, Arduin’s partner Laffer was a $75,000 paid consultant to Kansas Gov. Sam Brownback, helping craft the biggest tax cuts in the state’s history. Moore, another partner, was also reportedly an informal adviser to Brownback on the plan, which relied on cutting income taxes.

Laffer said the cuts would lead to “enormous prosperity” for the state, bringing new jobs and growth.

Instead, revenues fell by $700 million and never recovered. Then came a downgrading in the state’s bond rating and cuts to programs and services including Medicaid, education, courts and infrastructure.

By 2017, a Republican-controlled legislature voted to override the governor and pull back on the tax cuts.

Arduin herself did not have a formal role in what has come to be called “the Kansas experiment.”

Illinois was Arduin’s last stop before Alaska as a budget director.

Gov. Bruce Rauner introduced her in 2015 as his budget “superstar” and said he was willing to take political heat in exchange for getting Illinois out of a budget hole. The Arduin-crafted proposed budget in Illinois tapped state employee pension cuts to slice $2 billion. She left the job after nine months, when the legislature hadn’t passed a budget, collecting $165,000 for her work. The Illinois budget stalemate went on for more than two years after Arduin’s departure.

Again, the lofty goals of a Republican governor bumped up against the reality of working with a Democrat-dominated legislature, said Steve Brown, who served as spokesman for longtime Illinois House Speaker Michael Madigan, a major foe of Rauner’s budget plan.

“Rauner brought in some people from out of state that were mostly disciples of the Koch brothers or subsidiaries trying to inflict that damage in Illinois,” he said. “He didn’t get that much done. We did have a two-year budget impasse.”

Legislators believed the main budget savings Arduin proposed came from a change to pensions that would have been unconstitutional, Brown said.

“People in Alaska better buckle up if she has any real authority,” he said.

From left to right, Department of Revenue Commissioner Bruce Tangeman, Office of Management and Budget economist Ed King, and Office of Management and Budget director Donna Arduin testify Wednesday, March 6, 2019 in the Senate Finance Committee. (James Brooks / ADN)

Nowhere like Alaska

Everywhere she has worked, Arduin has been the subject of criticism — and fascination. But she hasn’t worked anywhere quite like Alaska, where the capital city has fewer than 30,000 people and a low profile is impossible to keep.

Public records show that Arduin relocated, at least part-time, to Michigan in recent years, where she said she kept chickens and three dogs. She is married to a Michigan man named Lee Kauranen who owns a construction and remodeling company. She sometimes uses the name Donna Arduin Kauranen, or Donna Kauranen.

In 2013, the Internal Revenue Service filed a lien against her because she owed $165,000 in taxes, which she resolved just before joined the Rauner administration in Illinois. The lien was explained as a problem involving Arduin using retirement funds to buy property, and then not securing a bank loan with enough time to repay the loan in the allotted time frame.

People who’ve worked with Arduin say she comes off as guarded in public but can be warm and funny in private. She’s forged some relationships in Alaska, including with conservative blogger Suzanne Downing, who recently commented “happy to call you a friend” on Arduin’s Facebook wall. (Arduin’s Facebook profile picture is a shot of her sitting behind a desk in the Oval Office.)

Soon after she accepted the Alaska job, she told a Daily News reporter she was looking at buying a home in Douglas.

Office of Management and Budget Director Donna Arduin and Alaska Gov. Mike Dunleavy meet with the Anchorage Daily News to discuss Gov. Dunleavy's budget proposal Tuesday, March 26, 2019. (Loren Holmes / ADN)

‘I enjoy it very much’

As Alaska debates its budget, Arduin has remained mostly quiet in public, an impassive presence at press conferences.

In a rare media appearance, she spent a half-hour on the Mike Porcaro radio show on July 2 explaining, point-by-point, the justification for various Dunleavy budget vetoes. Programs like the eliminated Alaska Council on the Arts, state support for public broadcasting and direct payments to seniors through are outside the scope of “core state services,” she said flatly.

People have been getting worked up about the university cuts, Porcaro suggested.

Arduin responded that the university is much more expensive than peer institutions outside Alaska, and that four-year graduation rates hover around 10%.

Nobody’s getting “thrown out” of Pioneer Homes for elderly Alaskans, she said.

“If you can afford to pay for it, we’re asking you to pay for the cost,” she said.

The two joked about the proverbial giant red pen Dunleavy needed to make the $444 million in cuts. Then Porcaro asked how she liked her job.

“You must be having fun,” Porcaro said.

“I enjoy it very much,” Arduin replied.

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